|>>|| No. 85197
The tax-free personal allowance, which rises to £12,500 in April, should be scrapped and replaced with a flat payment of £48 a week for every worker, according to radical proposals welcomed by shadow chancellor John McDonnell.
The proposal, from the New Economics Foundation thinktank, is for a £48.08 “weekly national allowance,” amounting to £2,500.16 a year from the state, paid to every worker over the age of 18 earning less than £125,000 a year. The cash would not replace benefits and would not depend on employment. The policy idea has been welcomed by the shadow chancellor, John McDonnell, and the Green MP Caroline Lucas, and would mean that as many as 88% of all adults would see their post-tax income rise or stay the same, helping to lift 200,000 families across the country out of poverty.
The weekly payments would be fully funded by the abolition of the tax-free personal allowance, which has seen inflation-busting increases under the Conservatives over the past 10 years, but which NEF said had benefited richer households most. For someone on £25,000 a year, the personal allowance means that the first £12,500 of their earnings, from this April, are not charged basic rate tax at 20%. This is worth £2,500. But if the same person is paid £48 a week instead, they will receive £2,496 a year, so they will be no better or worse off.
The leftwing thinktank, which has developed close links with Labour to become a key influencer of shadow Treasury thinking, estimates the current cost the tax-free allowance is as much as £111.2bn. It said the change would transfer about £8bn currently spent on tax allowances that benefit the 35% of highest income households to the rest of the country.
The policy is likely to face opposition from some voters, as it would also mean bringing down the threshold for higher-rate taxpayers from £50,000 to £37,500. This is because the starting point for 40% income tax moves with the personal allowance. NEF said this would affect the top 13% of earners in the country.
The richest 10% of households will be £1,470 better off by 2019-20 as a result of changes to the personal allowance since 2010, compared with just £130 for each of the poorest 10% of households.